Over the years, retail brands rise and fall in popularity, with some stores even disappearing completely. At the same time, thrift stores and other donation-based businesses always seem to stick around. Some people call these businesses “recession-proof.” Why does this model have such staying power? This article explains what makes the donation-based model so resilient.
The Benefits of the Thrift Store Model
Thrift stores usually follow a simple model: the store receives goods in the form of free donations, offers the goods at a reduced price compared to retail and pockets the proceeds to cover operations. Generally, thrift stores are non-profit entities.
This model has several benefits in terms of revenue. First, the potential scope of donations is large. Many people enjoy the feeling of donating used clothing, including items that loved ones aren’t using. Inventory can also come from estate sales, auctioned storage units or donations from larger thrift businesses. All of these sources can make it relatively simple to maintain a large inventory of goods.
Another benefit is that thrift shops are viewed as serving the community. Owners or store managers can feel good about themselves, supporting individuals who are going through tough times. There may be local or state incentives for this type of work.
The Challenges of Running a Thrift Shop
Just because donations are free, that doesn’t mean that thrift store models don’t have costs. Like any other business, thrift shops have to pay for rent, utilities, equipment, shelving and wages. In addition, donations don’t appear magically on store shelves. Someone needs to organize the items, add price tags and discard unsalvageable items.
Even nonprofits have to manage the day-to-day essentials of operations. They must manage receipts, payroll and expenses related to donation pick-ups. Maintaining an e-commerce website for donations and sales can be important as well.
Thrift Shop Solutions
The good news is that modern technology can help thrift stores simplify. For example, thrift store POS systems can make managing operations much easier. Point-of-sale terminals do more than handle credit cards, debit cards and mobile payments; they also help with business management itself:
- Automatically sending thank you emails to donors — which encourages repeat donations
- Letting online donors schedule drop-offs automatically
- Calculating payroll
- Creating price tags or discounts quickly
- Managing inventory easily
Put simply, POS is designed to help employees and managers run the thrift store effortlessly, regardless of their level of experience. This type of system can also help reduce the number of total employees required, something that is essential for donation-based businesses to keep operating.
The “Recession-Proof” Model
As non-profits, thrift shops aren’t known for generating a profit. Still, owners or managers can take home a comfortable salary. In some areas, the average salary for store managers is around $60,000 a year. For well-known national brands that pay per hour, managers can make over $20 an hour.
Even with tight “profit” margins, thrift stores are still around despite changing economic conditions. Some well-known names generate billions of dollars in sales every year. There are two reasons why these models have such staying power.
In a healthy economy, people are more likely to donate. When they have an excess of funds, they often enjoy “treating” themselves to new clothing, furniture or other goods. This gives thrift shops a boost in donations.
When economic factors reverse, there’s also a significant uptick in store sales. More people need the items that thrift shops have to offer. This increases revenue and allows older inventory to find a home.
Other Types of Donation-Based Businesses
This article has mainly covered thrift stores, but there are other models for donation-based businesses that work similarly, including:
- Consignment stores
- Antique stores
- Reuse stores for building materials or home appliances
- Nonprofits for repurposing furniture or decor
These stores may accept donations of old farming equipment or wood cabinets, for example. New homeowners can purchase materials at a discount and transform them into something beautiful. DIY fans end up with gorgeous cabinets, the nonprofit supports its mission and the planet benefits from reduced raw materials used. Everyone is happy.
Tips for Success
Keeping business operations simple is essential for success. Each employee increases the operating costs significantly, so automate as much as possible. Make donors feel proud to support the mission. Nonprofits can thrive with a little help.